Apple Pay: Using Its Midas Touch to Reinvent Mobile Payments

With Apple Pay, Apple is once again doing what it does best: reinventing existing markets, products and business models by delivering a simpler, more stylish and more streamlined user experience. Let's face it: Apple has a knack for making things frictionless and more exciting.

And its ability to market new services and create demand by seducing consumer’s appetite for making things in life easier is a lesson for all marketers. That’s true innovation.

Consumers love this and have all but become accustomed to it in Apple's product releases. Apple is not always the first to market with a new product category, but it has proven time and again that it is capable of turning these markets upside down. It accomplished this with the personal computer, portable music player and mobile phone. It is about to do it again with mobile payments.

Despite a lot of promise and hype, mobile payments and wallet solutions have not taken off. Many are enamored with the simplicity of using a mobile phone and/or other device to securely pay for things, but adoption rates show that only 3 percent of smart phone users in the US have adopted. In Europe -- where conventional wisdom implies that they are more progressive -- adoption is still not greater than 7 percent.

What Will Change Now?

The mobile landscape has not changed that much recently. NFC technology is not new and has been part of the Android ecosystem for years. PayPal and Google Wallet pioneered the mobile wallet. Even Apple had made initial forays into the space with its Passbook application.

With the Apple Pay announcement, Apple is not really bringing much new to market other than a secure device to store credit card information and securely transact the payment. But it certainly feels like Apple is driving major changes in the market. The mobile wallet in 2014 feels very much like the MP3 player in 2001 -- just on the brink of revolution. Just as the iPod completely changed how we buy, listen and share music, Apple Pay will forever change the way we pay for things.

And that means that mobile purchasing is likely to skyrocket, which will forever change the way retailers market to their customers. Marketers will now need to optimize their email and direct mail campaigns to take advantage of SMS, locational based services and a fully integrated mobile wallet. The e-commerce experience will need to evolve to provide one-touch checkout.

The brilliance is that the new Apple payments system will leverage the existing credit card networks run by Visa, MasterCard, American Express and the banks. By lining up major partners and retailers such as Disney, McDonalds, Walgreens, Nike, Macy’s, Bloomingdale’s, etc., Apple will overcome many of the obstacles that plagued other wallet providers. This impressive ecosystem represents six of the largest issuing banks, accounts for 83 percent of credit card transaction volume and represents a retail store presence of over 220,000. Similar to what Apple did by lining up record companies before launching iTunes, they have connected a payment ecosystem that will almost guarantee similar widespread adoption.

When Apple Pay is up and running, the service will be available wherever contactless payments are accepted today, so there will be no additional technology needed at the point of sale. It’s ready to go out of the box. Apple will also put its creative marketing muscle behind it and make it seem as simple "Tap and Go." This is what Apple does best.

This is how the tipping point will be created: consumers will start using NFC for contactless payments, pushing merchants to be more prepared and willing to make additional investments in it. This is the exact catalyst that has held NFC back and limited adoption.

How Did We Get Here?

It doesn’t take a genius to see how we got here. The mobile payments landscape remains intricate, with complex relationships between merchants, card issuers, payment processors, mobile operators and wallet providers.

And therein lies the problem. All of the mobile payment players are too focused on claiming a stake of their own livelihood that they are forgetting about the most important factor; the end consumer experience. Enter Apple. That is where they excel, making it simple and easy to use.

And as each week passes, the frequency of data breaches seems to increase with announcements initially from Target, Neiman Marcus, Michaels, Home Depot and most recently JP Morgan Chase.

The credit and debit cards used today are surprisingly vulnerable to fraud as many rely on old technology that can be easily penetrated. The timing and consumer appetite for adopting a more secure, robust payment technology is now.

The maturity of tokenization technology, which avoids card numbers from being stored on the physical device and the application of biometrics such as fingerprints and voice, will provide reassurance to consumers that this technology is ready for the mainstream.

What’s Next?

Let’s not forget that Apple has over 800 million registered iTunes users with credit card information on file. Monetizing these accounts is not just about enabling mobile payments, but will also open up many cross-selling possibilities that will be a huge potential revenue stream for Apple.

As usual, Apple won’t be going it alone as Facebook, Twitter and others have all indicated plans to get into the mobile payments space beyond their present initiatives. All of these companies have significant user bases and at some point they will need to demonstrate ways to monetize their users if they wish to retain their current market caps.

Finally, much has been said about the end of the Apple era of "i" products. Weren’t you expecting "iPay"? Was it discouraged to avoid conflict with ADP's employee portal service called "iPay"? Or is it something more? Seeding the Apple brand front and center into high profile products such as payments seems to be an indication of the future areas where Apple may begin to play post Jobs era.

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